For the kombucha industry, the cost of achieving clarity in product labeling continues to be high.
An $8.25 million settlement, first reported on Law360.com, between a group of consumers and co-defendants GT’s Kombucha and Whole Foods Market Inc. over mislabeling claims regarding the product’s antioxidant, alcohol and sugar content was granted preliminary approval on Tuesday by a California federal judge.
In his ruling, U.S. District Court Judge Philip S. Gutierrez wrote that the figure represents approximately 21 percent of the estimated potential recovery value of $38 million, which falls within the range or approval, particularly considering the expenses associated with continued litigation. Judge Gutierrez rejected a prior proposed settlement in September 2016 due to objections over perceived differences in the settlement amount and the alleged harm suffered by the plaintiffs.
The plaintiffs in the suit, Jonathan Retta, Kristen Schofield and Jessica Manire, alleged that GT’s Kombucha product labels made false claims; the label used the term “antioxidant,” which the product does not contain, and claimed to be non-alcoholic, which it is not. They also alleged the sugar content in GT’s Kombucha products was higher than reflected on the label.
In November, the suit was consolidated with a separate complaint alleging that GT’s Kombucha product packaging was prone to leakage and explosion due to excessive carbonation.
In addition to the financial restitution, the settlement requires Millennium Products Inc., the Beverly Hills, Calif.-based parent company of GT’s, to make changes to its product labels.
The company has agreed to cease using the term “antioxidant” on packaging, as well as include warning that the product does contain alcohol. It will also contain a disclaimer that “contents are under pressure” and that leaving the product unrefrigerated can “increase pressure, causing product to leak or gush.” Millennium agreed to ensure that the product’s accurate sugar content was reflected on labels as well.
The decision formally resolves the complaint, which had undergone five amendments since it was originally filed in March 2015, at which point Millennium was named as the sole defendant.
In an e-mail exchange with BevNET, GT’s Kombucha founder GT Dave emphasized that the company had not admitted to any fault or wrongdoing as part of the settlement.
“At the end of the day, the driver behind arriving at a settlement was to circumvent the business distractions and cost of defense that are always associated with these types of litigation,” he wrote. “The settlement enables us to focus on running our business and making healthy products instead of dealing with arduous and costly litigation.”
When asked how the labeling errors might have occurred, Dave responded: “Honestly, I don’t believe ‘errors’ is the proper language as this is not really about what’s ‘right’ or ‘wrong.’ These types of claims and their subsequent settlements are truly about eliminating anything about the product that can be perceived as misleading, confusing or inconsistent.”
Whole Foods notably elected to voluntarily remove all kombucha products from its shelves in June 2010 after bottles at the retailer’s Portland, Maine location showed alcohol levels ranging from 0.5 percent to 2.5 percent. The Alcohol and Tobacco Tax and Trade Bureau regulates all non-alcoholic beverages must contain less than .5 percent alcohol by volume (ABV).
In response to a question about how the case would affect the brand’s relationship with the retailer, Dave wrote, “Like all of our retail partners, we stand behind the product we make and always do the right thing for both parties. That’s the most important thing to retailers like Whole Food and all the other relationships we maintain.”
He also said that he believed consumers would be similarly unaffected by the case.
“It seems like everyday ethical and righteous brands are being attacked based on vague laws or simple loop-holes in regulations,” he wrote. “To a certain extent I think consumers are somewhat desensitized to these events and still primarily rely on their own personal relationship and experience with the product or brand.”
When asked if the settlement closed the door on any future litigation over mislabeling claims involving GT’s, Dave explained that unless policies were changed, the overall industry will continue to get tied up in litigation that is “based on flawed or outdated regulations.”
“As it stands today, a plaintiff can easily get their attorney’s fees awarded but the defense has a slim to no chance of recovering their fees even if they prevail in defending the suit,” he wrote. “This creates a very unfair advantage for plaintiffs and virtually “zero risk of any downside. This is why the term ‘cost of defense’ is so commonly associated in the rationale behind why most companies end up settling a lawsuit.”